Economists Clash Over Billion-Dollar Billionaire Tax in California

Voters in California face a binary choice on Election Day regarding Proposition 40, a proposal that would impose a one-time, 5% tax on the net worth of billionaires. The measure is designed to raise funds for health care for low-income residents, specifically to offset federal cuts to Medicaid. The outcome will determine whether the state proceeds with what would be the first wealth tax of its kind in the United States.

The debate over the tax’s financial impact has become a sharp divide between two prominent economists. Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, argues the tax will generate approximately $100 billion in revenue. Zucman, who helped design similar proposals for former presidential candidates, estimates that California billionaires hold $2.3 trillion in wealth. He calculates that a 5% levy on that amount, minus a 10% deduction for avoidance and evasion, yields the $100 billion figure.

On the other side of the argument is Joshua Rauh, a senior fellow at Stanford University’s Hoover Institution. Rauh, along with co-author Benjamin Jaros, contends that the tax will not raise money but instead cost the state $39 billion. Rauh argues that the proposal will trigger a mass exodus of billionaires, which will damage the state’s economy and reduce the existing income tax revenue that California already collects from these residents.

A central point of contention is the movement of wealthy individuals prior to the tax’s effective date. Prop 40 applies retroactively to anyone who was a California resident on January 1, 2026. Rauh asserts that at least seven prominent billionaires, including Larry Page, Sergey Brin, and Steven Spielberg, have already left the state. He estimates that these departures alone removed around $30 billion from the tax base.

Zucman disputes this view. He argues that changing an address is not the same as ending legal tax residency. He points to Sergey Brin, who has moved to the Nevada side of Lake Tahoe but continues to commute to Silicon Valley. Zucman believes it is unlikely that these individuals successfully severed their ties to California within the two-month window following the proposal’s announcement in late October 2025.

Both economists acknowledge that past wealth taxes have struggled with enforcement and evasion. Zucman notes that previous attempts, such as France’s tax scrapped in 2018, often failed due to loopholes for business assets. Prop 40 seeks to close these gaps by taxing business holdings and using the retroactive residency rule to limit mobility. However, Rauh argues that the legal complexities remain high, particularly regarding how the state values privately held companies and assets that rarely change hands, such as art or real estate.

The legal landscape adds another layer of uncertainty. Rauh suggests that constitutional challenges are inevitable, given the tax’s novelty and the Supreme Court’s conservative majority. He warns that the retroactive nature of the tax and its reach into global assets could lead to parts of the law being struck down in court. Zucman counters that the design of the tax addresses many historical pitfalls, but both sides agree that the final outcome will depend as much on legal rulings as on economic behavior.

The financial stakes are high for the state. According to a recent report in The New York Times, supporters of the measure have raised $333 million to defeat the proposition. As the deadline for voting approaches, the disagreement between Berkeley and Stanford offers a preview of a larger national debate over how to tax the superrich. The voters will decide whether California proceeds with this experiment, potentially influencing tax policy across the country.